Thailand's Central Bank Dismisses Deflation Fears Amid Low Inflation

Picture courtesy of Bangkok Post

Despite growing concerns from economists, the Bank of Thailand has assured that deflation is not yet a reality, even as the country grapples with persistently low inflation rates.

Addressing a monetary policy forum on Wednesday, Surach Tanboon, the senior director of the central bank's monetary policy department, clarified the situation. He noted that while inflation remains subdued, this is largely due to declines in energy and fresh food prices, rather than a widespread drop across various sectors. Essential consumer goods, crucially, continue to see price increases, reflecting ongoing high living costs.

"The categories of goods with continuously rising prices are mostly everyday items, such as ready-to-eat food, cooking ingredients, and non-alcoholic beverages. In this context, we have not seen any deflationary signals," explained Mr Surach.

Deflation, characterised by a general decline in prices and often linked to reduced money supply and credit, leads to an increase in the purchasing power of currency over time. However, the central bank’s projections offer some reassurance, with headline inflation expected to be 0.5% this year, rising slightly to 0.8% by 2026. Core inflation is forecast at 1.0% this year, marginally dropping to 0.9% next year.

Food inflation is anticipated to be 1.2% in 2025 and 1.6% in 2026, whereas energy prices are predicted to decline by 3.2% this year, with a smaller decrease of 1.3% next year.

However, the Kasikorn Research Center (K-Research) has issued a more cautious outlook, predicting a continuation of the inflation slowdown into the third quarter, following a notable drop to 0.25% in June. Concerns of a potential deflation onset linger, driven by falling energy prices and reduced fresh vegetable and fruit costs, including significant declines in staple items like rice and durian.

K-Research projects inflation to dip into negative territory in the third quarter before recovering by the year’s end. Their forecast for 2025 stands at 0.3%, citing ongoing pressures from global energy price falls, increased low-cost imports from China, and Thailand's weakening economy.

Similarly, Sathit Talaengsatya, an economist at UOB Thailand, warned of deflation risks, noting sluggish domestic demand alongside slower economic growth as major contributors to the declining inflation rate. UOB estimates inflation to reach 0.6% by late 2025.

As the Bank of Thailand navigates these choppy economic waters, its vigilance over price trends remains crucial to averting potential deflation and ensuring continued economic stability in the region.

  Adapted by ASEAN Now from Bangkok Post 2025-07-11